Salary Exchange
What is salary exchange?
Salary Exchange (sometimes called salary sacrifice) is an agreement between you and your employees, where they agree to exchange part of their gross salary or bonus for an equivalent pension contribution.
Why you should consider Salary Exchange
1. Reduce employer and employee National Insurance Contributions (‘NIC’)
2. Reduce employee Income tax
3. Maintain pension contributions whilst offering a better benefits package to staff at no extra cost
Disclaimer: Figures are based on an average salary of £30,000 per employee, each exchanging 5% of their salary for a pension contribution.
Setting up Salary Exchange in your business
Setting up salary exchange in your business is a relatively straightforward process. You can offer the arrangement to some or all your employees, so long as their reduced salary doesn’t fall below the minimum wage.
They’ll just need to agree to an altered contract of employment, which can be done through an agreement letter or an opt-out option.
Some things to consider
There can be an increased level of administrative and HR work required with a salary exchange arrangement. You can manage those levels by having a default approach to how savings are reinvested.
You’ll need to ensure your employee payslips display the amount of the salary exchanged. Can your payroll do this, or will it require additional resource?
Salary exchange may not be suitable for employees earning more than £240,000 as this can incur an additional tax charge
Because your employees’ yearly pre-tax salaries will reduce by agreeing to salary exchange, it can affect their entitlement to things such as statutory and salary-related benefits.
How can Cheylesmore Chartered Accountants help?
Cheylesmore Chartered Accountants can provide expert guidance and support for a salary exchange agreement.
Our team of qualified accountants can help you set up and administer a salary exchange agreement in compliance with legal and tax regulations. We can advise you on the most tax-efficient way to structure the agreement, ensure that the documentation is correct and provide ongoing support throughout the agreement's duration.
Our services include:
Advice on the suitability of a salary exchange agreement for your business and employees.
Calculation of the tax and National Insurance savings that can be achieved through a salary exchange arrangement.
Ongoing support and advice on the administration of the scheme, including the preparation of annual reports and the handling of any queries from HMRC.
By working with Cheylesmore Chartered Accountants, you can be confident that your salary exchange agreement will be set up and administered correctly, allowing you to benefit from tax savings and offer your employees attractive non-cash benefits. Contact us today to discuss your requirements and find out how we can help.
